New frontiers for China Cargo Airlines

On 29 November, China Eastern Airlines reached an agreement to sell its main-deck cargo business, including China Cargo Airlines, to CEA Holding for US$353 million. As things stand before the sale (which is awaiting approval), China Eastern Airlines is the sole owner of Eastern Logistics, which in turn, owns 83% of China Cargo Airlines (as well as 100% of each of two logistics enterprises).

In a statement to the Hong Kong Stock Exchange, China Eastern said China Cargo Airlines had “suffered large amount of cumulative losses during the period from 2011 to 2015.” Under those circumstances, it is no surprise that China Eastern would like to sell. But who would want to buy? In this case, the answer is: the government. CEA Holdings is a wholly state-owned enterprise, and the majority owner of China Eastern Airlines. So, in effect, the sale of China Cargo Airlines, if it is approved, will really just be the transfer of a financial headache to the state.

China Cargo currently operates two 747-400ERFs, two 747-400Fs, and six 777Fs. Following the sale, China Cargo will take over management of China Eastern’s belly capacity.

Cargo Facts was in Shanghai last week to discuss the potential long-term impact of the transfer with China Cargo Airlines management. They referred to a November 2016 speech delivered by Wang Haitao, deputy head of strategic development, to an audience of students at Shanghai’s Fudan University. During the speech Wang said China Eastern Airlines Group would press the state to allow it to expand its business focus and become an “aviation investment company.” He went as far as to say that he could visualize a future where the holding company owned no airplanes of its own.

In the near-term, China Cargo Airlines will likely continue to operate much like it has, as an airline. However, now that China Cargo Airlines is separate from China Eastern Airlines, management emphasized that it was now open to new partners as it pursues a more “open business model.” When asked for examples of this model, China Cargo Airlines pointed to the skyrocketing number of direct cargo flights it now operates.  A few weeks ago on 21 November, the cargo airline launched direct flights between its main Pudong hub, and the capital of Peru, Lima, with a 777F aircraft. In the past mangoes and blueberries traveling on these routes would have been interlined or transported via the United States, but under the new model, China Cargo Airlines has the flexibility to pursue viable opportunities and launch direct flights.